I use rewards credit cards to pay for all of my purchases. This allows me to earn as much as 2% (often even more) on all of my spending. I pay all my credit card bills each month in full, so there is no interest. Sometimes, however, I have to pay off a large expense over several months. Perhaps the furnace needs to be replaced. Perhaps my teeth are in dire need of replacement.
I might get married.
Avoiding interest is better than earning rewards when financing large purchases over time. The interest I would pay on a large balance on a rewards card in my wallet would outweigh any rewards I might earn. This is why credit cards with 0% APR are so valuable. You can put a large bill on one of these cards and have the flexibility to pay it off with no interest.
However, if I have to pay a lot for something I would like to be rewarded.
The Customized Cash Rewards Card is our winner
When you are applying for a credit card to finance major purchases, there are three things to be aware of:
The initial 0% APR period.
New cardholders get a bonus offer
You will reap the rewards of your purchase.
The Bank of America Customized Cash Rewards credit cards score well on all three. There is also a $0 annual charge. You don’t need to pay a fee for a 0% card, as the purpose of it is to help you save money.
Introductory APR Period
To purchase an engagement ring, I used the Bank of America(r), Customized Cash Rewards creditcard. Roast me. You’d be able to see the smile on her face if you looked closely.
Let me start by saying that although I had the money upfront to purchase the ring, I decided not to. There was a pandemic in the world at that time. I didn’t want to have to dip into my savings too often if it wasn’t necessary. I was able to use this card without having to.
The card offers a 0% intro rate on purchases for 18 billing cycle and a 0% intro rate on balance transfers for 18 billing cycle for any balance transfers that were made within the first 60 day. After that, the ongoing APR is 18.24%-28.24% Variable.
This is the longest 0% APR period on any rewards credit cards from any major issuer. This is even more than what you would get from other issuers’ dedicated Zero-Percent cards, which offer a longer 0% period. The 21-month 0% purchase period on mass-market credit cards is actually not that long.
The 0% APR period for the card was only 15 billing cycles at the time. This was enough time to cover the cost of the card before interest kicks in. Bank of America(r), has since extended the 0% term.
Although I was using my card to finance a “want” instead of paying upfront, these concepts also apply to people who have a pressing need that cannot wait for months to be met while they save the money. A perfect world would see everyone have enough money to replace their refrigerator immediately. Our world is imperfect.
Offer for new cardholders
The Bank of America(r), Customized Cash Rewards creditcard offers a new cardholder this offer: $200 cash rewards bonus, after you spend at least $1,000 within the first 90 day of account opening
This is one of the highest bonuses available on a cash back card. It has a $0 annual cost and requires very little spending. Even if you don’t spend $1,000 on your purchase, you can still earn the bonus by simply spending the same amount as usual.
In case you are wondering, the ring I purchased — which is the most beautiful ring that you will ever see — cost me more than enough to be eligible for the bonus. With just one purchase, I was able to earn $200 back.
Rewards for spending
The purchase earned solid cash back as part of the standard rewards structure. Although the rewards for the Bank of America(r), Customized Cash Rewards credit cards are not easy to understand at first, they become easier over time. The card earns you 3% cash back in the category of your choosing and 2% cashback at grocery stores or wholesale clubs on up to $2,500 combined spending in these categories. All other spending earns 1 percent
Six options are available for 3% categories that you can change once per month. Those options are: gas, dining, travel, drugstores, home improvement/furnishings and online shopping.
Online shopping is the best category. This card is very flexible and offers a lot of value and flexibility. Online shopping allows you to buy almost anything, even the most stunning engagement ring. Brick-and-mortar stores often allow you to order online and pick it up in person, which is considered online shopping.
The 3% category on the Bank of America (r) Customized cash Rewards credit card is for online shopping and not for online spending. Online shopping is generally defined as purchasing physical items from retailers. Services and bill payments do not count.
Even after you have paid off your large purchase, you will still earn 3% when shopping online. And unlike other cards that offer adjustable bonus categories, there’s no need to activate or select them again. Once you choose a category, it will stay in effect until you change your mind. Are you facing a major travel expense? Are you looking to purchase furniture? You can change your 3% category whenever you need.
This card has another advantage: the $2,500 quarterly cap on bonus spend is another. While other cards might offer higher rewards rates, but a lower cap, or have some other restrictions that limit their flexibility, they may also have higher limits. Take, for example:
Citi Custom Cash(sm), Card automatically earns you 5% cashback in the category where you spend the most. You can only earn 5% cash back on spending up to $500 per billing cycle. All other spending earns you 1%
Rotating category cards such as the Chase Freedom Flex(sm), and the Discover it(r), Cash Back earn 5% cashback in bonus categories that change each three months. Other spending earns 1%. You can only spend $1,500 per quarter to get the bonus cash back. There is no choice about the categories, and you must activate them every quarter.
You can earn rewards with the U.S. The U.S. Cash Rewards Card ™ Visa Signature(r), Card – NerdWallet Exclusive includes 6% cashback at two retailers you choose on your total quarter spending of up to $1,500 Although the list of eligible retailers is extensive, you can only select two (instead of earning bonus rewards for all online shopping). There is an annual fee of $0 for the first year and then $95.
How math works
The average cost of an engagement ring is estimated to be around $5,000 according to most estimates. Let’s take a look at that.
I choose online shopping to be my 3% category and get the Bank of America(r). This is a new card so I haven’t spent any money on it. Importantly, I have $2,500 to spend on the 2% and 3% categories.
I purchase the ring from an online jeweler for $5,000. They allow me to customize the most stunning ring you can imagine.
Earn 3% or $75 for the first $2,500.
For every $2,500, you earn 1% or $25.
I am eligible for the bonus because of my purchase, which is worth $200 more.
That leaves me with about a year to pay it off, without interest. The balance will be $4,700 if I apply the $300 instant cash back. It can be paid off in 10 months at $470 per month or 12 months at approximately $390 or 15 months for about $315.
You can increase the spending rewards that you earn by being a member of Bank of America’s(r) Preferred Reward program by 25%, 50%, or 75%. To qualify for Preferred Reward, you must have at least $20,000 in qualified deposit or investment accounts.
The importance and value of discipline
It doesn’t make a difference in dollars or cents whether you save $X per month for Y month before purchasing something or buy something that you have to pay later with interest-free financing at $X per month for Y month. The latter is more useful, however. Both cases involve you paying the same amount for the item, but the latter allows you to access the item while you pay for it. This is why mortgages are more popular than saving for a house for 30 years.
However, 0% financing is only useful if the debt is paid off within the 0% window. There is a temptation to buy now and then delay paying off the debt later. The 0% clock is over and you are paying double-digit interest rates for the debt.
In my case, I made it a line item in the monthly budget and committed to pay down the balance within the 0% period. If I wasn’t sure I would be able to keep up the pace, I would have set aside $X each month. My fiancee would only have to wait for Y month. But I’m worth it!